Paying one’s “fair share” of taxes

In this article about Roger Ver’s $100,000 bitcoin bounty to Bernie Sanders for a debate on the topic of patriotism, we come across this quote (emphasis added by me):

These great lovers of America who made their money in this country, when you ask them to start paying their fair share of taxes, they’re running abroad. — Bernie Sanders

The obvious problem with this is that Sanders’s opinion of what constitutes one’s “fair share” is likely to be quite different than that of, say, Milton Friedman.

And in the context of Sanders’s desire to raise taxes on the wealthy, it’s probably worthwhile to take a moment to review the current situation in terms of taxes paid versus benefits received across all income levels:

2 thoughts on “Paying one’s “fair share” of taxes”

My friend Chris Johnson added this comment at Facebook, which I wanted to re-post here, as it provides a thoughtful counter-argument. (He did want to clarify that it was written off-the-cuff.)

First, I consider the source. The Heritage Foundation is definitely slanted towards thinking — to summarize it in a blunt fashion — which benefits the 1%, particularly in having them pay lower taxes. So I know they’re going to have a lot of confirmation bias in that direction.

Second, I know it’s extremely difficult to quantify the “government benefits” received by anyone which can be attributed to having things like strong “rule of law” and “national defense” in operation over 200 years. However, it’s clearly the case that most very successful people, especially in industries like financial markets, would be making a lot less money, or would actually be dirt poor, if not for those benefits.

I think it can be easily argued that the top 2 quintiles benefit from many of those kinds of hard-to-quantify benefits much more than the bottom 2. For example, regulated financial markets (e.g. stock, bond) with with central bank policies designed to stabilize them hugely benefit the top quintiles directly — dividends, interest, capital gains, etc. — and only benefit the lowest quintiles in the form of many-times-removed economic activity.

In reading the Heritage report, I don’t see them making any kind of reasonable attempts to quantify those benefits.

Thirdly, I then further question the methodology. It appears to be easily distorted by things like lower quintiles sending their kids to public schools, and hence receiving greater Public Education category benefits compared to upper quintiles sending their kids to private schools and aggregately receiving fewer benefits. There are numerous other such distortions.

The chart is also misleading because of this fact — quoting directly from the paper: “It is important to note that there are substantially more persons in the top income quintile than in the bottom. This has a significant impact on the measurement of the distribution of government spending, taxes, and income.”

In other words, dividing strictly by income distorts the graph because the .1% have incomes so very much larger than most people — hundreds, thousands, even hundreds of thousands higher — dragging the quintile boundaries up. I am in the top quintile thanks to this effect! Yet my income is 100,000 times less than the guys at the top of the very same quintile I am in, maybe even a million times less for the top few!

And then I question, how do they know what people’s real incomes are? Beyond the typical wages, salaries and employment compensation that the bottom 2 or 3 quintiles generally see as their only income, the top quintiles see all kinds of other income, much of which is hard to track and not necessarily reported. Unrealized capital gains? Off shore unreported profits ala the Panama Papers? Who knows how much money those people are seeing in “income” per year.

Really all the graph tells us is that the Haves subsidize the Have-nots to some extent, and for good reasons: simple respect for human dignity, caring for your brother or sister citizen, a smoother running society, an economically strong and resilient society (there’s lots of emperical and theoretical evidence that having a fat middle class, not having an extreme 1% class, is actually more profitable over-all) or avoiding a French-style revolution (guillotines), pick your poison.

Paying one’s fair share is a debatable subject, because it’s a subjective idea as to what is fair. I’m generally in the camp that having the following three things are good for democracy, peace and free markets: (1) a tax system that is progressive, simple, clear and contains minimal loopholes and special interest advantages, (2) a large middle class without the extremes between the top 1% and the bottom 20% that we see today, and (3) a good level of minimum “safety net” for all people.

In reference to #3, I think that not only is it morally right to not let people suffer, but more importantly for self interest (my own and other wealthy people), reducing misery and poverty is better for the economy over-all in the shorter term, and better for the longevity of the nation in the longer term.

People definitely will NOT take being screwed economically forever. Some day they WILL rise up and kill the wealthy bastards who abused them. Maybe it’ll only be the grandchildren of today’s plutocrats and titans of industry, and they’ll have lived their lives as rich lords. (I guess if they’re totally Machiavellian and don’t care about their kids, I’ve got no convincing argument for them. But those kinds of sociopaths are few and far between.)

I’ve found over the years that many of the strongest supporters of extreme tax cuts for the wealthy are people who think they pulled themselves up solely by their own bootstraps. And that’s patently false. There’s thousands of things, small and large, that the United States have given them as citizens or residents (or even in many cases, citizens and residents of foreign countries) that have helped them in myriad ways to succeed economically.

The extreme alternative to that kind of uncounted or unmeasured massive collections of benefits would probably look a lot like a world full of the kind of small-time warlords who ran major parts of Afghanistan for decades: the meanest, nastiest guys with the most guns get the goods — for a while, until knocked off by some other up and comer with more guns, or more devious cruelty or something. But on the whole, almost everyone in areas like that (Somalia comes to mind) is desperate and poor and has little hope.

This is really tough to write and edit on FB, by the way, and longer than I intended. Anyway, I found the graph not helpful because the numbers it is based on are questionable (per above) and to the extent they’re representative of something, they’re highly misleading, anyway. Ultimately, I think the graph adds more heat than light to the discussion.

Yeah, who knows what the real numbers would be since everyone is living off of everyone. But to say that government ought to do something is also incorrect.

Societies prosper as a whole by having freedom. Creating tax structures, minimum livable allowances, etc will not create a free society. It will hamper the society. Having a minimum livable wage makes the lower brackets not want to rise for fear of losing their wages. Having a progressive tax structure causes people to plead for the government to make loop holes (which got us in the mess we are currently in), etc.

It’s basically the broken window fallacy.

To say that the government gave us things so we ought to be grateful is like the say the people that live in the territory of the mafia should be grateful that they get shakedowns because the mafia turns around and does charitable work for them. It makes absolutely no sense.

Gunvernment: Give me 50% of all your money.
Us: But we have things that we would like to do with that money. Like
help the poor. Retire early and then work on fun projects that will
benefit society, etc.
Gunvernment: See this big gun. I said hand it over. I don’t understand
why you don’t see all the good we have done for you, look at the roads
look at all the cops. We are here to help you. Now see this big gun? Yeah,
I know how to use it. So, give me the money!